Markets and Economy Pivot from Inflation and Monetary Policy Fears to a Weak Global Economy

NEWS RELEASE - Northern Trust, a global asset manager, expects 2023 to be a turbulent year as conditions pivot from inflation and monetary policy fears to a weak global economy, but the firm also expects market volatility to somewhat temper due to lower inflation and a pause in central bank interest rate increases. A reduction in rates is not seen as likely. 

“While we believe there is downside risk from fundamentals, we see upside potential from likely improved investor sentiment, “said Northern Trust Chief Investment Officer Angelo Manioudakis. “Financial markets will have to balance the immediacy of disappointing global growth against the backdrop of greater certainty on central bank policy, a reduction in interest-rate volatility and the potential of a return to growth later in the year.”

Change Among Constants

These changing conditions are behind the main message of Northern Trust’s 2023 Outlook being that it will be a “pivotal” year, although some conditions will persist.

The firm expects growth to continue to be constrained globally, with some regions arguably already in recession and others on the precipice. It also believes that China’s pandemic-to-endemic transition will continue to materially impact the outlook for global economic demand.

Investment Themes Drive Outlook

Northern Trust’s 2023 Outlook builds off the firm’s long-term Capital Market Assumptions (CMA) report, a forward-looking, historically aware five-year forecast that guides the firm’s strategic asset allocation recommendations. At the core of the CMA are investment themes, typically five or six, based on forces that Northern Trust identifies as driving markets over the next five years. The six themes from the most recent (August 2022) CMA are reflected throughout the 2023 Outlook. Among them are: “Slow Growth Transitions,” “Inflation Recalibration” and “Monetary Drought.”

The 2023 Outlook also includes forecasts on a range of asset classes.

High Yield Favored in Fixed Income

Northern Trust expects the bulk of the increase in interest rates is behind us and notes that the pace at which inflation falls will largely determine the rate path going forward. The firm maintains a neutral bias on duration risk, given limited upside and ongoing interest rate volatility. It prefers credit risk, particularly in the high yield space, given solid yields and decent fundamentals, even in the face of a shallow recession. In fact, high yield remains the firm’s highest conviction tactical overweight in its Global Policy Model, which presents the firms asset allocation recommendations. Investment grade bonds are the largest underweight, despite an expectation that their returns will turn positive in 2023.

Equities Reset Amid Weakening of Economic Growth

“Equity valuations should be less of a headwind in 2023,” said Chris Shipley, Northern Trust Asset Management’s chief investment strategist for North America. “However, we still expect 2023 to be a volatile year for equities across the globe as economic growth and corporate profits disappoint, but sentiment improves as inflation trends lower and central banks eventually pause their rate hike campaigns. Those crosscurrents leave us equal-weight developed market equities in our Global Policy Model, but underweight emerging market equities as intermediate-term challenges outweigh a bumpy and uneven reopening of China.”

Natural Resources Continue to Play Important Role

Just as real assets did in 2022, Northern Trust expects them to provide valuable diversification benefits to investors. This was especially true for natural resources. “Specific to natural resources, we have reasserted an overweight given their solid fundamental outlook and the way in which they can act as a hedge against an emerging market equitys rebound,” said Wouter Sturkenboom, Northern Trust Asset Management’s chief investment strategist for Europe, the Middle East, Africa, and the Asia-Pacific region. “Natural resources seized the day in 2022, and we think they will play an important role in 2023 as well.”  

The full Northern Trust 2023 Outlook is available at

The news release has been lightly edited to fit TEXPERS' publishing standards. Northern Trust Advisors is an Associate Advisor Member of TEXPERS. The views and opinions contained herein are those of the author and do not necessarily represent the views of TEXPERS. 
Forward-looking statements and assumptions are Northern Trust’s current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information.
Capital Market Assumption (CMA) model expected returns do not show actual performance and are for illustrative purposes only. They do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. Stated return expectations may differ from an investor’s actual result. The assumptions, views, techniques and forecasts noted are subject to change without notice. All forecasts are rounded to the nearest whole number.
This material is directed to professional clients only and is not intended for retail clients. For European and Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale investors only and should not be relied upon by retail clients or investors. For legal and regulatory information about our offices and legal entities, visit This material is provided for informational purposes only. Information is not intended to be and should not be construed as an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice.

About Northern Trust Asset Management
Northern Trust Asset Management is a global investment manager that helps investors navigate changing market environments. Northern Trust had US$999.1 billion of investor assets as of Sept. 30, 2022. 
Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Belvedere Advisors LLC, Northern Trust Asset Management Australia Pty Ltd and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 25 U.S. states and Washington, D.C., and across 23 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of Sept. 30, 2022, Northern Trust had assets under custody/administration of US$12.8 trillion, and assets under management of US$1.2 trillion.
Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at


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